Whole Foods’ Second Banana on Being Green
from
January/February 2007
by Bonnie Azab Powell
When people talk about the growth of Whole Foods Market Inc., the word commonly used to describe America’s No. 1 retailer of organic and natural foods is “juggernaut.” It’s not hyperbole.
The original Whole Foods opened in 1980 with a staff of 19. Two and a half decades and a series of acquisitions later, the Austin, Texas-based company has 39,000 employees, $4.7 billion in annual sales, and 187 locations in North America and the U.K. And while it’s still just a sapling compared with supermarket redwoods such as Kroger ($60.6 billion in revenues) and Safeway ($38.4 billion), its net profit margins are almost double theirs. The company’s stock price has risen by an average of 21.8% every year since it went public in 1992, versus 10.9% at Kroger and 12.6% at Safeway. Its “comps”—sales in an individual store compared with the previous year—consistently increase by more than 11% annually on average, far outstripping rivals.
Whole Foods has made grocery-shopping fun while creating a mass market for what used to be considered hippie fodder. The market for organic food is still just 2.5% of total U.S. food sales, but with yearly growth rates of 15% to 21% since 1997, it’s a market resembling asparagus—it points straight up. And for this Fortune 500 company, all the business success is a means to an end. Founder, chairman, and CEO John Mackey has forcefully declared his belief that Whole Foods embodies a new form of capitalism, a values-driven version that works for the common good. Sequestered for a book project, Mackey is ducking interview requests. But his second-in-command, co-president Walter Robb, sat down with Bonnie Azab Powell of
Corporate Board Member
in his modest digs at Whole Foods’ Emeryville, California, regional offices to define and discuss those ideas. Excerpts:
You said recently, “We’re not retailers with a mission, we’re missionaries who retail.” Explain the difference.
The deepest core of Whole Foods, the heartbeat, if you will, is this mission, this stakeholder philosophy: customers first, then team members, balanced with what’s good for other stakeholders, such as shareholders, vendors, the community, and the environment. If I put our mission in simple terms, it would be, No. 1, to change the way the world eats, and No. 2, to create a workplace based on love and respect. We believe business should meet the needs of all the stakeholders, as opposed to operating it for shareholders.
“A workplace based on love and respect” is not something you typically hear from a company the size of Whole Foods.
Journalists can be cynical. But for us this comes from the soul, from a desire to change the world. I think the table stakes for being a business in the 21st century are sustainability—keeping a long-term focus on the environment and whether your actions harm or help future generations—and treating your people well. When you see Al Gore’s movie [
An Inconvenient Truth
] and you read a magazine cover story on global warming and the environment, and you see these concerns are real, what’s your answer to that? If you’re not doing something about it, then what are you doing?
Why is that business’s job?
Business is the most generative enterprise we have. The legal profession just gums things up. Medicine is caught up in bureaucracy. The nonprofits can’t support themselves without business. It’s business that creates jobs, energy, and enterprise. Business is the change engine of the 21st century—if it chooses to be. Not only ethically, but also in terms of how it treats people and impacts the communities where it does business. We’re hoping to set an example for that.
What’s the incentive for other corporations to follow you?
Competition. Look at the history of business in this country. Many of the biggest are no longer in business. Anyone who’s not taking the longer view of what the competition and the marketplace does will miss the boat. It’s not a one-way dialogue from the brand to the consumer anymore. The consumers have new tools and new transparency for communication, and they’re asking, “Where do your products come from? Who’s growing them? How responsibly are you functioning as a company?”
These questions represent real shifts in consciousness in the world, which is a wonderful thing. Then there’s executive pay. Who really believes that the CEO needs to make 500 times what the average worker does, like what’s going on at places like Home Depot? At Whole Foods, the six of us on the executive team are all paid the same [$470,000 in salary and bonus for 2005], including John Mackey, because we have a salary cap at 14 times the average pay. We make our decisions together as a team. There’s a lot about our structure that’s a little bit different.
Whole Foods has been named to
Fortune
’s list of the best companies to work for in each of the nine years since the list was started. But Mackey compares putting up with unions to having herpes. How do you square those two things?
Okay. That’s a memorable quote, but he said it in 1983—give the guy a break. Listen, Whole Foods is pro-worker, pro-team member. If you look at our very core, our DNA, the second stakeholder is the team member. Unions in this country started because companies were exploiting people—coal companies in the 1850s and 1870s, then factories and mines. Today less than 10% of U.S. workers in the private sector are in unions. Let’s remember that unions are a business, and their membership is declining. I believe there’s a question of whether they truly represent workers.
So if they’re ineffectual, why not allow them?
Where is it written that unions are the only ways you can be a team-member-friendly company? Was that handed down by Moses or something? I missed that. The point of a union was so that companies would be partners with and responsible to the people working for them. Structurally, we walk our talk. We have the salary cap for executives; we have open information-sharing about all salaries; 93% of our stock options are held outside the executive team. Everybody in the company belongs to a team, and they vote on new hires for those teams. We have gains-sharing every four weeks, a system we set up where a share of labor savings is given back to the team.
Now is everyone completely happy? No, it’s not paradise; it’s not idyllic all the time. The thing about unions is, you have to talk to a third party to talk to your own workers. We strive for direct communication and partnership. And I think on the whole we’ve been successful. If a union comes up at Whole Foods, if people feel the need to go outside the company, then we don’t really have the company that we think we do.
So something went wrong with the store in Madison, Wisconsin, that voted for a union in 2002?
Yes. That was a giant wake-up call. The store team leader fell asleep at the switch. The people working there no longer believed the promise of Whole Foods, and I don’t blame them. They voted for the union, and it lasted a year. On day 366, a group of the workers in the store filed a petition to disband the union, which they did. That was a tremendous learning experience. Now we’re doing town-hall meetings in every region every year, and we do anonymous morale surveys twice a year. We let every team member vote on the health-insurance plan, and we did a ballot on the whole benefits package for the company.
Whole Foods donates 5% of after-tax profits to nonprofit organizations, and also oversees two foundations. How does philanthropy contribute to the bottom line?
We’ve delivered comparable or superior shareholder value through this business model; it’s not like our shareholders have suffered. There are over 6.5 billion people on the planet right now, and 2.8 billion of them live on less than $2 a day—many in the areas where we source some of our products, like coffee or chocolate. We have a responsibility to contribute, and we think the best way we can do that is with the Whole Planet Foundation, which has partnered with Grameen Bank to provide microcredit [to people around the world to help them start small businesses]. We’ve made about 750 loans already in Costa Rica and Guatemala. The average loan is about a dollar right now. Can you believe that? Yet it’s already making a tremendous impact. [Grameen Bank and its founder, Muhammad Yunus, recently became joint winners of the Nobel Peace Prize “for their efforts to create economic and social development from below.”]
It seems that other companies are deciding it’s time for them to embrace sustainability and global responsibility. Wal-Mart has also announced a goal of being powered exclusively by renewable energy and producing zero waste. And along with Safeway and others, it’s making a big foray into selling organic food, only it has said it will do so for just a 10% premium over the industrial kind. How are you going to explain to Whole Foods customers why they should pay, say, $2.59 a pound for organic apples when they can get them for $1.59 at Wal-Mart?
Wal-Mart backed off, you know; they later said that they realized they couldn’t sell it for that, because the supply isn’t there. And they may offer it, but the early information doesn’t show that they’re necessarily selling it. Just because Wal-Mart decides to sell something doesn’t mean the Wal-Mart consumer is going to buy it. We’ve spent a lot of time educating our customers about organic.
Wal-Mart is in a difficult competitive position. They just had to back out of China; they’ve backed out of Korea and Germany. Their comps—the same-store year-over-year growth—have been on the very low end of their scale, and they have to grow just like any other company. So they’re looking around for how they can grow, and one of their answers is, “Well, we’ll be more sustainable and we’ll sell more organic.” This is a strategy for them, as well as a feel-good thing.
You sound kind of cynical.
I’m not. Listen, Wal-Mart’s the best retailer on the planet, and you’ve got to have respect for them. We certainly do. It’s a good thing that they’re doing this; it says that sustainability is really here. We don’t have to discuss anymore whether it’s a fad or it’s bullshit. We can all agree that it’s a good thing for the planet. I don’t know that Wal-Mart thinks that as much as it thinks that’s a business game for them, based on their spokesperson’s comment about organic being “just like any other merchandising scheme.” But I don’t know [Wal-Mart CEO] H. Lee Scott, so I don’t know what he really thinks.
How big can Whole Foods grow and maintain its balance among its stakeholders?
It’s an interesting question. We don’t know ourselves. From where we started, we’ve already gotten very big. Where do we want to be? We’ve said that by 2010 we’ll be at $12 billion in sales, and we’ve said that we’re going to be an international company. We’re competitive folks; we’re not hippie-dippy la-di-das. We intend to compete and produce the best food stores that we possibly can, and make an impact. How big can we get? I don’t know. Five-year plans don’t work even in Russia.
Any last words you want to leave Corporate Board Member readers with?
Look, first, even though we’re very proud of what we’ve accomplished, we’re not over here thinking everybody else is bad. We are not arrogant. Business is hard. It’s not an easy marketplace to compete in these days. However, we believe earnestly in what we believe, and in the example we’re trying to set. We’re trying to live our principles and be true to who we say we are. So in that spirit, we would love to share, interact, and network with anybody about the role of business. It’s a commitment to start down a path and think about things more holistically, but ultimately you should find those things that are true to you within your own stakeholder groups, and a way that’s authentic for you.
Because ultimately what the customer wants, I think, is authenticity. They want to associate with brands they feel are real and can make a contribution to their lives.
